Recently the travel discount provider Priceline agreed to purchase OpenTable for $2.6 billion. OpenTable, for those who are unaware, is a service that allows users to make reservations conveniently on their smart phone. And while the company is unarguably a success, Forbes has recently called into question the multi-billion cash offer that Priceline made.
Priceline is paying $103 a share, approximately 47% higher than the $70 OpenTable closed at on Friday. Forbes analysis of OpenTable however, has the company’s value lower at around $1.65 billion. The premium that Priceline has offered most likely has to do with other competitive bids it expects OpenTable to receive.
OpenTable currently has 31,583 restaurants using the service to take reservations. Additionally it has been reported that the company successfully seated a little under 47 million diners within the first three months of this year alone. According to Forbes, data compiled from OpenTable indicates that the convenient reservation maker has seated approximately 570 million people in the last seven years.
But compared to the business Priceline generates, OpenTable seems to be just a drop in the bucket. Priceline reported that their total revenue for 2013 was $6.8 billion. In comparison OpenTable only made $190 million in the same amount of time. What really separates the two companies though, is that international business accounts for 90% of Priceline’s total sales. OpenTable has yet to report a quarterly profit for its international market.
Like Priceline has done with past acquisitions such as Kayak or Booking.com, OpenTable will most likely continue to operate independently from the Priceline banner. Forbes reported Priceline CEO Darren Huston as saying that the company’s focus will be helping “the OpenTable team accelerate their global expansion.”
Currently OpenTable only has 7,700 restaurants who participate in the service in the global market. Priceline is optimistic though that they will be able to increase this figure by 15-20% annually in years to follow. Forbes reported that a 20% increase in international restaurants would increase the company’s value as much as $350 million. OpenTable will also be able to cut operating and marketing costs as well as increase margins by merging into Priceline. All in all, OpenTable’s value is expected to increase by over a billion dollars. So as long as all goes to plan it looks like Priceline’s investment is set to pay off.
Photo: Priceline.com
